Economy June 2009

Do CEOs Matter?

Steve Jobs, Apple’s ailing CEO, is scheduled to return to work this month after a six-month leave, but investors are feeling skittish. Every time he sneezes, shares of Apple catch a cold. Can a CEO—even one as talented and visionary as Jobs—really make or break a corporation? Many business scholars have grown skeptical of the idea of chief executive as superhero. Cutting-edge research reveals that while some CEOs clearly do make a big difference, many are merely the most visible cogs in complex machines.
Tim Wagner/Zuma Press

Spare a thought, if you would, for the trials of the Apple shareholder. Like fretful parents at the bedside of an ailing child, investors have been wringing their hands over the health of Steve Jobs for nearly a year now—or even longer. The Apple Inc. CEO underwent surgery for a rare, treatable form of pancreatic cancer in 2004, and since then, the state of Jobs’s health has nagged at shareholders, analysts, and cultists. To some observers, Jobs’s fate and Apple’s seem entangled beyond all untangling; last year, one analyst estimated that Apple would instantly lose a quarter of its market value were Jobs to leave, whether under his own steam or carried out on his shield. Jobs’s doctors might as well append a chart of the company’s stock price to his medical file, so closely do its spikes and dips track the chatter about his condition.

Chronic investor anxiety over the Apple CEO turned acute last June, when an emaciated Jobs publicly addressed Apple’s software developers. His appearance fanned worries that his cancer had returned. Unimpressed by the company’s assertion that Jobs was merely suffering from “a common bug,” investors rushed to sell their shares, knocking more than $4 off Apple’s stock price in a day. About six weeks later, The New York Times, citing anonymous sources close to Jobs, reported that he had informed Apple’s board of directors that he was cancer-free and had undergone an unspecified surgical procedure to address his weight loss. Apple shares popped 2.6 percent on the news. But relief turned to alarm again in August, when some hapless soul at Bloomberg.com accidentally posted a canned obituary of Jobs, sending traders into a tizzy until Bloomberg put out a somewhat cryptic retraction of its “incomplete” story.

The ghouls and hustlers at play on the Web have been quick to exploit the interplay between Apple’s stock price and its CEO’s health. In October, one of CNN.com’s volunteer “iReporters”—the network is experimenting with so-called citizen journalism—filed an entirely false report that Jobs had been rushed to a hospital after a massive heart attack. Traders suspected that this was a ruse by the iReporter to profit from a fall in Apple’s stock price, though a subsequent investigation by the Securities and Exchange Commission concluded it was just a teen prank. In any case, Apple shares tumbled 5.4 percent before CNN corrected the report.

For sheer nastiness, though, it’s hard to top the hackers who broke into the official Web feed of the annual Macworld developer conference in January. They interrupted the real-time play-by-play of the proceedings with the all-caps message STEVE JOBS JUST DIED. The real bloggers quickly disavowed the message, only to be overridden three minutes later by the hackers: “Oh, wait, sorry. Steve did die. Our condolences.” Shortly thereafter the conference organizers pulled down the live feed.

Apple’s close-to-the-vest PR policy has opened ample space for rumors to grow. Jobs’s instinct for concealment has spread throughout the company; reporters’ inquiries into almost any corporate matter are routinely rebuffed. And even when Apple does make an official comment about Jobs’s health, it manages to undermine its own credibility. In light of subsequent revelations, the company’s brush-off remark that Jobs was suffering from a “common bug” at the June 2008 conference seems disingenuous at best.

Still, that statement wasn’t as damaging to Apple’s credibility as the January announcement that Jobs was suffering from a “hormone imbalance” that compromised his ability to absorb protein. The remedy, Jobs said soothingly in a letter released by the company, was “relatively simple and straightforward.” The press release sparked another relief rally in Apple shares, but the good feelings ended abruptly nine days later, when Apple released another statement from Jobs admitting that his health problems were “more complex” than initially believed and that he would take a six-month leave from the company to address them.

You know what comes next. Apple shares fell almost $5 as soon as trading opened the following day—wiping out about $4 billion of the company’s market value—although the stock retook some of the lost ground before day’s end. After that whiplash experience, Apple investors could be forgiven for wondering which was less believable, the rumors or Apple’s announcements.

As of this writing, Apple maintains that Jobs will be back on the job in June, though many observers are skeptical. Apple’s stock price, meanwhile, has bounced back smartly from its January low, suggesting, perhaps, that investors are coming to terms with the idea of their favorite CEO’s mortality.

However the matter of Jobs’s return is settled, it prompts other, larger questions: Short-term stock swings aside, should it really matter to Apple whether Jobs returns? How much difference can a CEO make, anyway?

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Harris Collingwood is a business writer living in New York.

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